Victory and Southern Tier Brewing form alliance

The middle is an increasingly tough place to be in the beer business. With that in mind, two of craft beer's best-known mid-sized breweries are joining forces.

Downingtown, Pennsylvania-based Victory Brewing Company and Lakewood, New York-based Southern Tier Brewing are forming an alliance that will operate under parent company Artisanal Brewing Ventures.

"The craft beer community is at its most critical moment since its inception as larger brewing corporations have bought into our grassroots movement, irrevocably changing the marketplace," Bill Covaleski, founder and brewmaster of Victory Brewing, said in a statement. "Like-minded brewers such as Victory and Southern Tier can preserve our character, culture and products by banding together."

Source: Victory Brewing Company

Victory Brewing Company

Under the new arrangement, the two breweries will operate independently but combine marketing, sales and distribution forces to increase scale and expand distributor and retail partnerships.

A Victory and Southern Tier combination would account for more than 250,000 barrels based on 2015 production volume, placing it among the top 15 largest craft brewers in the United States as ranked by the Brewers Association.

In 2014, the latest ranking by the Brewers Association, Victory Brewing was the 29th largest craft brewer and Southern Tier ranked 35th in size.

But to say the beer business has changed considerably since the short amount of time in which those 2014 rankings were released would be an understatement.

More than two dozen deals took place in the beer industry in 2015, with breweries of all shapes and sizes involved.

Among those deals, Anheuser-Busch announced the acquisition of fellow global giant SAB Miller and acquired four U.S. craft breweries and a cider company in separate deals; Constellation Brands bought Ballast Point Brewing for $1 billion. Several craft breweries, including Dogfish Head Craft Brewery, signed private equity deals to help fund its rapid growth.

Southern Tier Brewing was ahead of the transactional tsunami when it struck a deal in 2014 to sell a stake to private equity firm Ulysses Management for an undisclosed amount and named former Pabst exec John Coleman as its CEO.

Artisanal Brewing Ventures was created at that time with the "vision of creating a home for like-minded best-in-class craft breweries in close partnership with their founders." Southern Tier founder Phin DeMink said the Victory deal is perfect example of the type of arrangement he foresaw.

"This is exactly the kind of alliance we imagined when we created Artisanal Brewing Ventures in 2014," DeMink said in a statement. "This is a concept that was specifically designed by and for craft brewers, so we can focus on the things we're best at while creating meaningful scale advantages."

While the breweries will be managed independently, under the new arrangement Southern Tier's Coleman will lead Artisanal Brewing and Victory's Covaleski and Ron Barchet, Victory's chief operating officer, will become shareholders in the partnership and join the ventures' board.

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